Wintel Duopoly Not Quite Ready For Tablet Prime Time Yet

| About: Microsoft Corporation (MSFT)

Some time ago we wrote two articles about the death of the personal computer (PC). In them we argued that there is a substantial shift going on, away from the PC and towards tablets and other forms of mobile computing.

This shift is hurting the old Wintel 'duopoly,' Intel (NASDAQ:INTC) and Microsoft (NASDAQ:MSFT), and favors companies with a strong position in the new paradigm, like Apple (NASDAQ:AAPL), ARM Holdings (NASDAQ:ARMH), Qualcomm (NASDAQ:QCOM), Nvidia (NASDAQ:NVDA), Texas Instrument (NYSE:TI) and Samsung (OTC:SSNLF).

We also reminded readers how fast things are moving:

Apple even sold more iPads last quarter than HP (NYSE:HPQ) sold computers- and HP is the world's top PC maker.

And that it is Apple's explicit aim to replace the PC. And the tablet is doing a pretty good job:

The tablet market will grow by at least 200 percent in the next two years and by 2014, they will outsell PCs on an annual basis. [PC Magazine]

According to Tim Bajarin from PC Magazine, things are heating up:

These are remarkable times to be a gadget lover. Between the iPad mini, Windows 8, and the forthcoming Windows Phone 8 and new Android tablets, personal computing has been revolutionized in a matter of weeks.... As Microsoft launched its new Windows 8 OS, which finally brings touch to the Windows PC market, I could not help but wonder: are we actually seeing the end of the PC as we know it and the beginning of truly personal computing?

There are a number of longer-term trends impacting the competitive landscape:

  • Mobile data becomes ubiquitous
  • Computing power shrinks and becomes cheap
  • More computing and storage moves to the cloud

Together, this means that ever more computing power can be packed into an ever smaller package and the cloud (and ubiquitous mobile data networks) ensure your personalized computing experience is available anywhere and largely device independent. We see this already with stuff like the MK802, an Android mini PC the size of a USB flash memory stick.

Full power Intel-based devices (like the Core i5-powered NUC) are still quite a bit bigger, but no doubt this will shrink as well. The most obvious example is of course the smartphone, which is simply like that MK802 with a screen. Since smartphones will continue to get more powerful, perhaps the future belongs to that Asus padphone concept in which a smartphone can power a larger screen (tablet) to improve the computing experience.

The latter remains to be seen. For now, it's likely that the shrinking of computing power and the movement to the cloud enables tablets to usurp the laptop. Tablets have already all but annihilated netbooks. Tablets (and, one has to say, especially those from Apple) are an order of magnitude easier to use than PC's or laptops, opening up computing power to many more people that still balked at traditional PC's.

Tablets have already greatly accelerated many aspects of computing. Only a year or two ago it was simply unimaginable to have a sub $400 device (like the Nexus 10) with a 10 inch PLS (superior to the ubiquitous TN panels in laptops) carrying a whopping 2560x1600 resolution. While Apple is carrying these superior screens to the laptop, these come at a multiple of the price.

However, tablets started mainly as media consumption devices. But the Asus Transformer changed that. An absolutely brilliant idea combining a tablet with a dock containing a keyboard, a second battery and more connection options. The package together is a true tablet/laptop hybrid, at least in its form factor. Alas, it's still running on an ARM based processor, the Nividia Tegra 3 using Android as operating system.

And this is exactly where Microsoft comes in.

Microsoft fight-back?
Of course, neither Intel nor Microsoft were going to take all this lying down. Microsoft's new Windows 8 operating software is an attempt at stopping the rot.

Windows 8 offers a compelling third way to take on the iPad: by putting a full PC experience on a tablet. [CNN]

The funny thing is, tablets are mostly a consumer (or media consumption) device but Microsoft is hoping to get into the tablet market essentially by appealing to business. It's the latter where software margins are high and where Microsoft can leverage its advantage of legacy software written on its Windows platform:

Analysts say there's an underserved market of buyers looking for a tablet they can actually do work on. [CNN]

That not only involves adding a keyboard (although not one which doubles as a second battery and connection hub like the Asus Transformer) and, more importantly still, creating a new operating system that is capable of not only move Microsoft into the tablet space dominated by touch, but also able to run the full legacy of Windows applications.

However, the latter still requires these tablets running on Intel (x-86) based processors, and this is where the first hurdle comes in. One could argue that Intel isn't quite ready for prime time in the tablet space just yet. Any Core i3 (or i5, i7) powered tablet is still just a tad unwieldy and energy hungry.

This isn't a surprise, the difference in size of the two little mini-PC-like gadgets, the Android/ARM based MK802 and the Windows/Intel based NUC is quite telling. Microsoft has a full Windows 8 tablet coming (in January), the Surface-Pro is heavier, thicker, and needs a bigger battery that probably doesn't last as long.

Essentially, the Surface-Pro is like a ultrabook (sleek, smaller but fully powered notebooks) but in a form factor that resembles the Asus Transformer. The danger is that it is a jack of all trades but a master of none. As a tablet, it might be compromised by the larger weight, thicker form factor and inferior battery life (not to mention the lack of apps). It also remains to be seen how quickly it starts and resumes.

As a laptop, while enjoying full-functionality, it remains to be seen whether it can compete with ultrabooks with better keyboards. Some observers note that it does have certain advantages over Apple's iPad (like the keyboard cover, the kickstand, USB 3.0 connection where the iPad doesn't even have a single USB 2.0 port and the possibility of pen input).

However, Microsoft seems keenly aware of the limitations of the Surface-Pro, which is one reason we have the Windows RT Surface, in which a stripped down version of Windows runs on ARM-based processors.

But these too are compromise products. The could easily confuse consumers blissfully unaware that despite the 'Windows' logo, they don't run their legacy software at all. Windows RT doesn't even run Mozilla's Firefox (at least not yet). John Dvorak from PC Magazine even argues that many consumers will return the product:

I guarantee that people will look at this machine and buy it, only to return it to Microsoft as defective because it has a complete Windows 8 look and feel, but it is actually Windows RT... Microsoft hopes that these ignorant users will go only to the Microsoft online store to get software, as if they were Apple iPad users or Android phone users. This is expecting a lot when even the most ignorant of users know that the great thing about Windows is you can get software anywhere and the platform is not locked down like with a Mac.

As a tablet, however beautiful, it suffers from a lack of apps, at least for now. However, Dvorak's colleague at PC Magazine, Damon Porter argues that there are too many interests wedded to the success of Windows on ARM-based machines for it to fail. Obviously ARM and those chipmakers that license ARM's design (NVidia, Texas Instruments, Samsung, etc.). But even Intel itself has some reasons:

should AMD fade from the picture, Intel's best bet to avoid antitrust action would be to demonstrate that ARM is providing just as much competition as AMD ever did.

Well, ultimately it's the consumer who will decide on this. Experts vary widely in their assessment of how successful Microsoft will be. The range of estimates is staggering, from IHS iSuppli's 20 million Windows tablets by the end of next year (either Windows 8 or WindowsRT) to Forrester's 7 million to IDC's just under 5 million.

Compare this to Apple's 73 million tablets that Apple is going to sell next year, according to Gartner, and things are put into perspective.

It could have been quite different if Intel had a powerful chip that would run Windows 8 providing a tablet experience, the instant on, all-day battery, smooth experience of the Apple and Android tablets. In a way, this isn't fair as Windows 8 simply requires heavier processor power compared to Android or Apple's iOS. Add to that the much denser screens the problem becomes even clearer.

Intel already has an energy efficient chip that can power mobile operating systems similarly to the ARM based architecture, but there simply isn't yet a chip that can run full Windows 8 on a sleek, instant-on, all-day battery, retina display tablet, despite the improvements of Windows 8 versus Windows 7 in terms of start-up speed.

Most commentators focus on the 'dual layer' nature of Windows 8, the rupture this means for the non-touch desktop and laptop experience, the lack of the start button, and the lack of apps compared to the competition. All of these are viable perspectives, but one should not forget the advantage of Windows 8 in terms of legacy software, especially in the corporate world. However, a smooth Windows 8 tablet simply requires processing power that isn't (yet) available.

Whether it's Intel's chips that are not quite ready to put Windows 8 on a tablet smoothly or Microsoft Windows lineage is simply too bloated is a moot point. The reality is that the old Wintel duopoly isn't quite ready for the prime-time tablet show. Moore's law will take care of this, but in the meantime, products are out that are compromises, however cleverly and elegantly these have been designed.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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